Recast European Insolvency Regulation An Introductory Analysis - PDF document

Recast European Insolvency Regulation Prof. Dr. Bob Wessels Recast European Insolvency Regulation An Introductory Analysis Prof. Dr. Bob Wessels Em. Prof. University of Leiden / The Netherlands info@bobwessels.nl [February 2015] www.bobwessels.nl Introduction: Context • Article 46 Reports “ No later than 1 June 2012, and every five years thereafter, the Commission shall present to the European Parliament, the Council and the Economic and Social Committee a report on the application of this Regulation. The report shall be accompanied if need be by a proposal for adaptation of this Regulation. ” 12-12-2012: Proposal for a Regulation amending EIR [COM(2012) 744] Explanatory Memorandum, 13 recitals + 51 amendments Includes: - Report on the application [Com(2012) 743] - Impact Assessment [SWD2012) 416final] http://ec.europa.eu/justice/civil/commercial/insolvency/index_en.htm 2013-2014 discussions with EP and Council December 2014 Recast of EIR http://register.consilium.europa.eu/doc/srv?l=EN&f=ST%2015414%202014%20ADD%201 www.bobwessels.nl, weblog 2014-12-doc4 1

Recast European Insolvency Regulation Prof. Dr. Bob Wessels Explanatory memorandum • Two general objectives: 1. While the Insolvency Regulation is generally considered to operate successfully in facilitating cross- border insolvency proceedings within the European Union, the consultation of stakeholders and legal and empirical studies commissioned by the Commission revealed a range of problems in the application of the Regulation in practice. Moreover, the Regulation does not sufficiently reflect current EU priorities and national practices in insolvency law, in particular in promoting the rescue of enterprises in difficulties. Explanatory memorandum • 2. The overall objective of the revision of the Insolvency Regulation is to improve the efficiency of the European framework for resolving cross-border insolvency cases in view of ensuring a smooth functioning of the internal market and its resilience in economic crises. This objective links in with the EU ’ s current political priorities to promote economic recovery and sustainable growth, a higher investment rate and the preservation of employment, as set out in the Europe 2020 strategy. The revision of the Regulation will contribute to ensuring a smooth development and the survival of businesses, as stated in the Small Business Act [COM2008)394]3. The revision is also one of the key actions listed in the Single Market Act II http://ec.europa.eu/internal_market/smact/index_en.htm 5 main shortcomings: 1. Scope 2. Jurisdiction 3. Secondary proc. 4. Publicity of proc. & lodging of claims 5. Groups of companies 2

Recast European Insolvency Regulation Prof. Dr. Bob Wessels Counter ‘Five main shortcomings ’ The elements of the proposed reform of the Insolvency Regulation can be summarised as follows: • ฀ ’ Scope : The proposal extends the scope of the Regulation by revising the definition of insolvency proceedings to include hybrid and pre-insolvency proceedings as well as debt discharge proceedings and other insolvency proceedings for natural persons which currently do not fit the definition • Jurisdiction : The proposal clarifies the jurisdiction rules and improves the procedural framework for determining jurisdiction Counter ‘Five main shortcomings’ (cont’d) • Secondary proceedings: the proposal provides for a more efficient administration of insolvency proceedings by enabling the court (i) to refuse the opening of secondary proceedings if this is not necessary to protect the interests of local creditors, (ii) by abolishing the requirement that secondary proceedings must be winding-up proceedings and (iii) by improving the cooperation between main and secondary proceedings, in particular by extending the cooperation requirements to the courts involved; • Publicity of proceedings and lodging of claims: The proposal • requires MSs (i) to publish the relevant court decisions in cross-border insolvency cases in a publicly accessible electronic register and (ii) provides for the interconnection of national insolvency registers. It also (iii) introduces standard forms for the lodging of claims; • • Groups of companies: The proposal provides for a coordination of the insolvency proceedings concerning different members of the same group of companies by obliging the IPs and courts involved in the different main proceedings to cooperate and communicate with each other; in addition, it gives the IPs involved in such proceedings the procedural tools to request a stay of the respective other proceedings and to propose a rescue plan for the members of the group subject to insolvency proceedings.’ Today’s Agenda Key points in Recast EIR • Compare EIR v Recast • Scope • Jurisdiction • Applicable law • Secondary proceedings • Information and publication • Lodging claims • Cross-border cooperation • Groups of companies • Leftovers + Next steps 3

Recast European Insolvency Regulation Prof. Dr. Bob Wessels Materials • www.bobwessels.nl – Copy of ppt-slides – Follow weblog • www.tri-leiden.eu – Business rescue in insolvency law http://www.europeanlawinstitute.eu/ – Out-of-court turnaround Compare EIR v Recast Compare • • 33 recitals 83 recitals • ‘Purposive interpration’ • Ditto – no Report Virgós/Schmit 1996 Report • • 47 Articles 91 Articles • • 3 Annexes 4 Annexes • • A: all insolvency proc. A: ditto (Art. 2(5) Recast) • • B: winding-up proc. B: all IPs (Art. 2(6) Recast) • C: all ‘liquidators’ • C: repealed Regs, including 1346/2000 • D: Correlation table Articles EIR and Recast Transposition table Recitals EIR and Recast See blog 2015-02-doc5 4

Recast European Insolvency Regulation Prof. Dr. Bob Wessels Scope • Scope of the current EIR • Problems: – Definition Art. 1(1) EIR – Annexes: function and role of MSs Scope (cont’d) EIR is applicable to proceedings (Art. 1(1)): • 1. That are “ collective” : all creditors concerned may seek satisfaction only through these insolvency proceedings, as individual actions will be precluded • 2. Based on “ the debtors insolvency’” and not on other grounds • the insolvency-test itself is rooted in the legislation of the lex concursus • 3. The proceedings must entail the total or partial divestment of the debtor, and • 4. The appointment of a ‘liquidator’ CJEU: listed in Annex A www.bobwessels.nl Scope (cont’d) The scope of the Recast extends to 8 (!) proceedings (Rec. 10): 1. which promote the rescue of economically viable but distressed businesses and give a second chance to entrepreneurs 2. which provide for the restructuring of a debtor at a stage where there is only a likelihood of insolvency 3. which leave the debtor fully or partially in control of his assets and affairs 4. which provide for a debt discharge or a debt adjustment of consumers and self-employed persons - by reducing the amount to be paid by the debtor, or - by extending the payment period granted to him Appointment of an IP? Rec. 10: These proceedings do not necessarily entail the appointment of an IP, but fall under the scope if they take place under the control or supervision of a court: ‘In this context, the term "control" should include situations where the court only intervenes on appeal by a creditor or other interested parties’ Introduction of Debtor in Possession (DIP) proceedings 5

Recast European Insolvency Regulation Prof. Dr. Bob Wessels Scope (cont’d) • 5. which grant a temporary moratorium on enforcement actions brought by individual creditors where such actions may adversely affect negotiations and hamper the prospects of a restructuring of the debtor's business • Such procedures should not be detrimental to the general body of creditors and should be preliminary to other procedures covered by the scope of this Regulation if no agreement on a restructuring plan can be reached (Rec. 11) • 6. which are subject to publicity in order to allow creditors to become aware of the proceedings and to lodge their claims, thereby ensuring the collective nature of the proceedings, and in order to give creditors the possibility to challenge the jurisdiction of the court which has opened the proceedings • So no ‘confidential’ insolvency proceedings (Rec. 12) Scope (cont’d) • 7. that, under the law of some MSs, are opened and conducted for a certain period of time on an interim or provisional basis before a court issues an order confirming the continuation of the proceedings on a non-interim basis. • Except for being labelled as "interim", these proceedings should meet all other requisites of this Regulation (Rec. 14) • 8. which are triggered by situations in which the debtor faces non- financial difficulties, provided however, that these difficulties give rise to a real and serious threat to the debtor’s actual or future ability to pay his debts as they fall due • ‘Threat’: The time horizon relevant for the determination of such threat may extend to a period of several months or even longer in order to account for cases where the debtor is faced with non-financial difficulties threatening his going concern and, in the medium term, his liquidity. This might be the case, for example, if the debtor has lost a contract which is of key importance to him (Rec. 16) Other requirements? (appointed liquidator/divestment of debtor) 6